3 Ways Women Can Bridge the Retirement Gap

Studies show women make better investors than men, but you wouldn’t know that looking at women’s retirement accounts.

Here are the harrowing numbers:

Men’s average 401(k) balances are more than 50% higher than the average for women, according to a 2015 Vanguard study.

On average, men contributed about 22% more to individual retirement accounts of all types in 2014 than women, according to recent estimates from the IRS.

When it came to end-of-year fair market values for IRAs, the average for men was nearly $63,000 more than for women, the IRS reports.

In 2014, nearly half of elderly unmarried women receiving Social Security relied on those benefits for 90% or more of their income, the Social Security Administration says.

What gives? Blame the pay gap that manifests itself as a retirement gap. To borrow a Beyonce-ism, perhaps it’s time for women to “get in formation” and tackle this gap. Here’s where they can begin.

1. Start now

You’ve heard this advice before because it’s true: The earlier you start investing, the better off you’ll be when retirement comes. This is an especially important lesson for women: A recent NerdWallet study found that to build a comparable retirement fund, the average American woman must invest the equivalent of $1.25 from her wages for every $1 the average man invests.

Where can women begin? At work. Max out the 401(k) match if your employer offers this type of benefit. This free money will help accelerate whatever contributions you’re able to make.

If you don’t have a 401(k) match or you just want to build supplementary savings, consider a traditional or Roth IRA. What’s the difference? Traditional IRAs offer an upfront tax deduction, whereas Roth IRAs allow tax-free distributions in retirement.

2. Think small

Invest early, and repeatedly, but don’t forget to be prudent. In an ideal world, you’d max out retirement contributions, earmarking the annual contribution limit of $18,000 for your 401(k) and $5,500 for IRAs ($6,500 if you’re 50 or older). But that’s just not feasible for everyone.

In the real world, there are bills to pay and other near-term financial needs. Before funding a retirement nest egg, it’s best to pay down high-interest debt like credit cards or build up an emergency fund.

But once those issues are handled, even a relatively modest increase in the amount you set aside for retirement now can make a big difference later on. For instance, a person who saves $5,500 in a Roth IRA each year from age 28 to 67 will garner more than $150,000 in additional retirement savings compared with a saver who invests $4,500 annually over the same period.

Experiment with the NerdWallet Roth IRA calculator to simulate how different contributions can affect your balance at retirement.

3. Reject indecision

Hemming and hawing about how to start investing for retirement will get you nowhere. You don’t have to have your entire journey mapped out at the get-go. Changes along the way are inevitable — how you allocate investments between stocks and bonds, for example — and can switch up decisions you made previously.

One such switch might be a 401(k) rollover, in which you take money from an old employer-sponsored plan and transfer that balance into another retirement account. Another? Converting a traditional IRA to a Roth IRA, which would bring tax advantages for some investors.

Like most of the IRA statistics collected by the IRS, women lagged behind men in doing Roth conversions. A smaller share of women than men did these in 2014, and the average amount converted — about $13,500 — was almost $6,000 less than that of men.

As to why this happens, it’s possible women believe some common myths about IRAs. But be it misinformation or indecision, any delay in saving for retirement now will cost you down the road.

Get on track for retirement

Digging into the nuances about how, and how much, men and women save for retirement can be disheartening or motivating, depending on your perspective.

While women do face some unique challenges, they’re hardly alone. About half of American families aren’t saving enough to maintain their standard of living in retirement, according to the National Retirement Risk Index.

To get yourself on the right track, calculate how much you’ll need for retirement and commit to investing toward that goal. Along the way, try bumping up the amount you save by 1% or 2% a year.

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